UK inflation unexpectedly leaps to 6-month high in August
* Prices rise annual 2.7 pct in August, above all forecasts
* Sterling jumps above $1.32 for first time since late July
* UK house prices grow at slowest pace since August 2013
* Biggest drop in London house prices since 2009
(Adds reaction)
By Andy Bruce and William Schomberg
LONDON, Sept 19 (Reuters) - British inflation jumped
unexpectedly to a six-month high in August, pushed up by
bigger-than-usual seasonal increases in sea and air fares and
briefly sending sterling above $1.32 for the first time since
July.
Consumer price inflation rose to an annual rate of 2.7
percent in August from 2.5 percent in July, the Office for
National Statistics said - above all forecasts in a Reuters poll
of economists that had pointed to a fall to 2.4 percent.
The ONS also said British house prices rose at the weakest
annual rate in nearly five years, dragged down by the biggest
drop in London house prices since 2009 - the latest sign of a
slack housing market since the 2016 Brexit vote.
Wednesday's data jolted investors. British government bond
prices fell and sterling rose sharply, but it dropped later on a
report Prime Minister Theresa May will reject a new European
Union plan to solve the Irish border problem around Brexit.
The inflation figures are also likely to surprise Bank of
England officials who had expected inflation to cool to 2.4
percent in August.
The BoE last month raised interest rates for the second time
since the financial crisis but pointed to only gradual future
increases as it expects inflation to drift down to near its 2
percent target in three years' time.
Most analysts doubted the latest jump in inflation reflected
a rise in underlying price pressures and was driven mostly by
factors like theatre ticket prices that were probably one-offs.
"Despite the overshoot, we are doubtful that we are likely
to see any resulting shift in the mood music from those on the
UK's Monetary Policy Committee," Investec (LSE: INVP.L - news) economist Victoria
Clarke (Toronto: CKI.TO - news) said.
Still, the rise in inflation in August represents a setback
to the modest recovery in real-terms wage growth that has helped
to support economic growth this year.
The fall in the value of the pound in August on renewed
concerns about Brexit deprived consumers of the benefit of a
fall in oil prices in annual terms, the ONS figures showed.
Consumer price inflation hit a five-year high of 3.1 percent
last November, when the inflationary effect of the pound's
tumble after Britain's June 2016 referendum vote to exit the EU
reached its peak.
LONDON FALLING
The ONS said house prices in July rose by an annual 3.1
percent across the United Kingdom as a whole compared with 3.2
percent in June - the smallest increase since August 2013.
House prices in London alone fell 0.7 percent year-on-year
in July, the biggest drop since September 2009.
"Slowing growth in house prices will encourage households to
save a larger share of their incomes and will strengthen the
case for the MPC to hold back from raising Bank Rate again
within the next six months," economist Samuel Tombs from
Pantehon Macroeconomics said.
Despite August's rise in the headline rate of inflation, the
ONS data suggested there could be some relief for consumers in
the months ahead.
Prices at British factory gates rose 2.9 percent
year-on-year in August, the weakest increase in four months.
Manufacturers' costs for materials and energy also rose at the
slowest pace in four months.
(Reporting by Andy Bruce and William Schomberg; Editing by Mark
Heinrich and Hugh Lawson)